China's Ever-Inflating debt balloon

A report from S&P Global published Thursday says that Chinese companies will account for nearly two-thirds of new credit raised globally by 2020. S&P forecasts that outstanding debt will expand by half to $75 trillion by then.

"Indeed, investors are buying speculative-grade corporate debt, including those from emerging markets, and extending maturities to generate positive yields ... the reward is becoming increasingly unsustainable."

OUR TAKE: Another risk to monitor closely.

International Credit Outlook | Prognosis: Not good

According to Fitch, sovereign credit ratings are on track for a record number of downgrades this year (the worst since 2011). "At 30 June, there were 22 sovereigns on Negative Outlook and only six on Positive Outlook. The former include major economies such as the UK, Japan, Brazil and Russia as well as Saudi Arabia."

OUR TAKE: Our subscribers have long had "0%" exposure to International Equities precisely because the global growth continues to slow.

Helicopters Grounded

"No need and no possibility for helicopter money," BOJ head Haruhiko Kuroda said in a BBC Radio 4 program that was broadcast Thursday. “At this moment, the Bank of Japan has three options with quantitative and qualitative easing with negative interest rates." The Yen popped 1% on the news, even though a Wall Street Journal article this morning reported that the conversation was recorded in June before helicopter money speculation began.

Draghi: "Whatever it takes" 2.0?

European Central Bank head Mario Draghi argued, on Thursday, that a "public backstop" would be "very useful" in helping Italy's problem-plagued banks sell down bad loans. Italian bank UniCredit finished up 2% on the statement.

IMF: "five [OBVIOUS]ways to spark growth"

After cutting global growth expectations again (see chart below), the IMFis out with proposals on how best to "spark" economic growth. Here they are:

Reducing uncertainty around “Brexit” and its repercussions, through a smooth transition to a new relationship between the United Kingdom and the European Union that as much as possible preserves gains from trade.

Implementing a stronger and more balanced set of economic policies that exploits policy synergies of well-sequenced structural reforms with growth friendly fiscal policy and continued monetary support.

Addressing the post-crisis debt overhang that saddles advanced economies and the rising corporate debt that burdens many emerging economies.

Lifting long-term growth and making it more inclusive, through structural reforms by making workers and business processes more productive.

Reinvigorating trade, making sure that the gains from trade are widely shared, and reviving the spirit of multilateralism, including to address geopolitical spillovers that could threaten the global recovery.

Bullish On Biotech? Don't Buy The Bubble Brofessor

Takeaway:"Biotech IPOs and venture capital fundraising is down. Slow growth is negative for risk appetites which is negative for fundraising."

On The Macro Show earlier today, Hedgeye Healthcare analyst Andrew Freedman responded to a subscriber's question about Biotech (IBB) stocks. As Friedman said:

"If you want to be long biotech here you have to ask yourself: Do you think the fundraising environment is going to get incrementally better from here? Biotech IPOs are down and venture capital fundraising is down. Meanwhile, slow growth is negative for risk appetites which is negative for fundraising."

It's a viscious cycle. Below are three charts that outline why he thinks the biotech bubble has popped:

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Capital Brief: 3 Key Insights On Trump Ahead Of Tonight's Speech

Takeaway:Third Time's The Charm?; The Kids Are Alright; Missed Opportunities

Editor's Note:Below is a brief excerpt from Hedgeye Potomac Chief Political Strategist JT Taylor's Capital Brief sent to institutional clients each morning. For more information on how you can access our institutional research please emailsales@hedgeye.com.

“Politics makes me sick.”

-William Howard Taft

THIRD TIME’S THE CHARM?

Day three of the Republican convention concluded with a positive shift with a speech by veep nominee Mike Pence who focused on introducing himself to an unfamiliar nation, while building on party unity and important policy ideals. Pence’s role will be simple in the coming months, he’ll provide a balance between Donald Trump and the Republicans, adding much-needed substance and value to both the party and the ticket.

But it wouldn’t be a day at a 2016 Republican convention without some drama or controversy. In what we think will be remembered as political miscalculation, Senator Ted Cruz called on Republicans to “vote your conscience” without endorsing Trump and was booed off stage (of course, with Trump seizing the opportunity to step on Cruz’s message by entering the convention hall at just the right time) providing Trump with the singlemost unifying moment of the convention so far.

THE KIDS ARE ALRIGHT

Most of America knows Trump for his real estate deals and from his reality tv show, but they don’t know him personally and he may actually be a good guy. As his most trusted advisers and surrogates, his family has moved to humanize him, bring him down to earth, and show his sensibility. Trump’s family has provided audiences nationwide with a different view of the man running for president – with the hope that he’s someone they can relate to on a personal level.

Melania’s speech missed it for obvious reasons, but Donald Jr., Tiffany, and Eric have been the messengers he’s needed all along - and Ivanka, the most anticipated of the five, will have her turn tonight.

MISSED OPPORTUNITIES

Tonight will be give Trump the opportunity to turn the page on a Republican convention that has been part coronation, part Keystone Cops, part soap opera. We’re beating a dead horse into the ground, but his campaign continues to be late to the game on everything - missing opportunity after opportunity to shore up the base before the convention even started as he’s been the presumptive nominee since winning Indiana on May 3.

Now, instead of focusing their attention on critical undecideds and independents at the convention given a captive national audience, Trump and Republicans keep finding themselves struggling to unify, stay on message (see Trump’s comments on NATO yesterday) and offer up a positive vision for the country.

Around The World In 5 Charts

As the hopes and whims of investors swing wildly through markets, these delusions become increasingly disconnected from economic reality.

A case study in delusion: Japan. "No need and no possibility for helicopter money," BOJ head Haruhiko Kuroda said in a BBC Radio 4 program that was broadcast Thursday. “At this moment, the Bank of Japan has three options with quantitative and qualitative easing with negative interest rates."

The Yen jumped 1.1% on the news. Now the WSJ reports this broadcast was recorded in June and FX markets backed off.

This is all getting rather silly...

We reiterate today that the supposed catalyst "helicopter money or bust" is not a risk management process. Here's analysis from Hedgeye CEO Keith McCullough in a note sent to subscribers earlier today:

"Heli-Ben money hits a wall with Kuroda saying “no need or possibility for helicopter money” – doesn’t that suck. Reiterating short Nikkei as the Yen just popped +1.1% on that after failing to break-down through 108 vs. No support for Nikkei to 14,993."

While We're on Central planning nonsense...

ECB head Mario Draghi kept rates on hold today but had a number of innocuous things to say about the Euro-area economy, like this gem:

"Headwinds to economic recovery in euro area include outcome of UK referendum and other geopolitical uncertainties."

And then Draghi suggested that a "public backstop" would be "very useful" to help struggling European banks. Furthermore, Draghi added that the bad debts in Italy’s banking sector are a “very big problem.” Italian bank UniCredit popped 4% on the news (after falling more than -60% in the past year) along with other bank related stocks pushing the FTSE MIB index up marginally today.

McCullough dissects the latest out of Europe:

"Protracted recession pending in Europe? What’s the catalyst to get Italy, France, etc. out of one? Reiterating the short call on both European Equities (Germany, Spain, and Italy… in that order) and the Euro vs. USD (Italian stocks haven’t joined the helicopter party, -0.3% this am and -30% vs. where you could have bought them at this time last year)."

It's getting ugly out there...

"Turkey's president has declared a state of emergency for three months following Friday night's failed army coup," the BBC reports. "The emergency allows the president and cabinet to bypass parliament when drafting new laws and to restrict or suspend rights and freedoms." (For more analysis on what to expect out of Turkey, check out Hedgeye Potomac National Security analyst LTG Dan Christman USA Ret. "What Comes Next After The Failed Coup In Turkey.")

In COMMODITIES MARKETS...

The #StrongDollar ravaging continues.

Meanwhile, Here at home...

Equity markets are within spitting distance of all-time highs. But, as we've pointed out before, the recent stock market rallies have come on declining total market volume. Not good.

In these uncertain times, What do you buy?

On pullbacks... Gold (GLD), which has developed a seemingly antithetical correlation of 0.9 to the U.S. dollar over the last 30-days. Note: Gold has been working all year (and remains a Hedgeye Long call):

As our outspoken CEO Keith McCullough is fond of saying, "Risk happens slowly at first, then all at once."

Hedgeye Statistics

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